Hedge Funds Gain Most Since 2000 as Stocks Rally

Date: Friday, May 8, 2009
Author: Saijel Kishan, Bloomberg

Hedge funds, in a positive sign for financial markets, posted their biggest gain since February 2000, returning an average of 3.8 percent last month, Hedge Fund Research Inc. said.

Funds have risen 4.2 percent this year, according to data released today by the Chicago-based researcher. It was the second straight monthly increase.

“It is potentially bullish for equities if hedge funds, with substantial cash on the sidelines and facing significantly lower outflows in the second quarter, return to the markets,” Bank of America Corp.’s Mary Ann Bartels said in a May 4 report.

The Standard & Poor’s 500 Index of the largest U.S. companies rose 9.4 percent in April, its best month since March 2000. Equity hedge funds were the best-performing category last month, returning an average of 6.4 percent, according to Hedge Fund Research. The worst performers were macro funds, which profit from broad economic trends by trading everything from bonds to commodities. The funds had a 0.4 percent loss, the company said.

Investors pulled $103 billion from hedge funds in the first quarter, a decline from the record $152 billion of withdrawals in the final three months of last year, Hedge Fund Research said last month.

Industry assets fell to $1.33 trillion at the end of the quarter as redemptions more than offset an average investment gain of 0.53 percent. Hedge-fund assets peaked at $1.93 trillion in June.

Stemming Outflows

To stem withdrawals, about 17 percent of funds had restricted redemptions as of March 31, Credit Suisse Group AG said in a report today.

Hedge funds returned an average of 6.2 percent in February 2000, according to Hedge Fund Research.

Odey European Inc., the hedge fund run by Crispin Odey, posted the biggest monthly gain in its 17-year history after betting that “junk” shares would be the biggest beneficiaries in a market rally.

The London-based fund advanced 28 percent in April, according to data compiled by Bloomberg. Odey, 50, reversed his bets that bank stocks would fall, and bought shares in Royal Bank of Scotland Group Plc and Barclays Plc in addition to companies such as Avis Europe Plc.

Brett Barakett, who runs Tremblant Capital Group in New York, posted a 3.8 percent return from his $1.5 billion onshore Tremblant Partners Fund last month, bringing the year-to-date gain to 13.5 percent, according to an investor letter.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net